A mantra is something that people say all the time and they believe usually without really understanding if it still makes sense.

The mantra in the financial world is “A dollar borrowed is a dollar earned”.

Perhaps you have heard it. Following this advice worked in the Autumn K-wave economic cycle, but now we are in the winter cycle and the same mantra will collapse the whole system. Actually it already has, but most people don’t know it. Borrowed dollars on all levels, gov, state, business, and personal has put this country in the place it is.

“A dollar borrowed is a dollar earned” only works if the borrower’s profit exceeds the amount of debt service for the length of time of the debt. Once the merry-go-round stops (or even slows) and the money is not coming in or the debt service grows (higher interest rates, for example) or the asset value falls…game over.

And game over on every level of the economy as every level of the economy is now entrenched in this debt cycle. That’s why the banks were bailed out. To continue the doomed debt cycle.

In addition, borrowed money locks the investor into whatever investment he/she has borrowed for. But what if that investment outlook changes? Or the entire economy tanks? No new investments in other areas more profitable are possible because all profits are going to service the debt from the failing investment. That is why in the winter economic cycle, debt is a burden and cash is king.

The debt that fueled the expansion of the economy in the 80’s and 90’s; that same debt will eat the value of the asset and implode the system. The reason is that debt can not expand forever. Period. There is a breaking point where the profit from the debt will exceed the debt service. I don’t think Wall Street and the gov understand this (or just don’t care). We have reached this breaking point. Now the cannibalism of the system begins.

The new mantra is “cash is king”.

Of course, groovygirl doesn’t mean “cash” as in USDollars; they will be devalued. She means “cash” as in a liquid, available savings that has preserved its purchasing power.

Fire sales of debt-ridden assets on all levels will be on the auction block for the next 10 years. If you understand the mantra “cash is king”, you will be able to pick up some great bargains. Hopefully, assets with a monthly cash flow.

Be careful about buying assets until the currency crisis of the US Dollar hits (estimate of 2015), it will impact price of assets. Groovygirl is not saying to pass up a bargain, just make sure you are looking at that “bargain” with the understanding of the coming currency crisis. It may not be a bargain with that in mind.

Side musing: John Williams’ headlines, you pay for the good stuff:

4th-Quarter GDP “Boom” Sets Stage for Double-Dip

2009 Downturn Worst Since Great Depression

Watch-Out for 2010 Federal Deficit!

Durable Goods Orders Keep Bottom-Bouncing

John is still calling for a double-dip depression with the next dip later this year. It will be interesting to watch the spin before mid-term elections. Nothing is fixed; expect what happened in 2008 to happen in 2010.

January 30, 2010

Although, most people still think of gold as a “barbaric relic”, in reality, it has been the best performing currency in the last 10 years. We are in the middle of a 20-year bull market for precious metals.

James Turk has a wonderful chart illustrating these facts. Click here.

In addition, the DOW is near where it was in 2000, the lost decade for stocks, while gold averaged a 14.9% return in dollars and silver, a 14.4% return in the same period.

To further illustrate the DOW/Gold point, click here for a chart from chartoftheday.com, the DOW priced in gold. The DOW has been declining since 2000 in real purchasing power.

“Invest in stocks for the long-term” and “your home is an investment” are false statements now. (As we are in a 26-year decline in real estate value in real terms, per Martin Armstrong.) They worked in the K-wave Autumn cycle through 2000, but they will not work in the K-wave Winter cycle. The Winter cycle is about currency crisis and debt.

You still have time to reposition your investments for the long-term if you have not already done so. James’ charts also help show you the best currencies. But prepare for short-term ups and downs, long-term gain. Notice that the USDollar is in the lower half?

Understand these charts and you understand the impact of floating fiat currencies on your investments.

In times of change, learners inherit the earth, while the learned find themselves beautifully equipped to deal with a world that no longer exists. –Eric Hoffer – Longshoreman, Philosopher

Groovygirl has been following the questioning of the AIG bailout. Several items have come to my attention that you will never see from the talking heads on TV. These facts prove that the bailout of AIG is criminal, and the entire bank bailout should be earnestly questioned in detail.

Zerohedge.com got the “Schedule A” from AIG (the one they have been trying not to release because it affects national security or something). This is a legal tax document required by law showing the list of beneficiaries of the AIG bailout of 100% on the dollar. You have no doubt heard that Timmy demanded 100%, when the investors on this list were willing to take less. Criminal. Timmy should be fired immediately. Click here. And here. Zerohedge.com has been on top of this story since day one. Excellent job!! Most of the investment and legal jargon will be alien to you, read it anyway. You will get the point.

Then there is an excellent ppt presentation of “follow the bailout money”. Apparently the gov committee assigned to do just what is in this presentation are not done yet. Not expected to be done until end of 2010. Here it is for your review by non-gov. “It takes a Pillage” is easy to follow. You will never see the truth from Big Media, but you can here.

We all know we got screwed as taxpayers. Now here is the proof. The very sad part is the Media did not question the bailouts at the time OR report now when the proof is all over the internet. Since there is no pressure from Big Media and Congress seems to be dysfunctional at best, justice for the crime of the century will never come.

In this environment you will have to hunt for and discern the truth for yourself. You will also be responsible for protecting your investments. Get the education and tools needed to do these two things for yourself and your family.

January 28, 2010

John Williams with Shadowstats.com was interviewed on Goldseek Radio. He reviews the fundamentals, the double-dip depression, and the dollar. He uses the real stats to help us understand what is really happening and cut through the F-TV double talk.

Lots of free stuff on the shadowstats.com website. The subscription for the more recent information is well worth the money. I get no kick back for saying that.

Very important-side musing: Money markets can now suspend redemptions. Repeat, money market funds are not as liquid as in the past. Click here.(fixed the link) (And make sure you read the comments on this post.) As a result, 30-day Treasuries have turned a negative interest rate yesterday as investors pile into something that is liquid even if they lose money on the deal. This is what I meant when I said that it is more important to have savings preserved and available vs. earning a return. A million dollars in a money market fund that you can’t redeem (when you need it) is really zero dollars. Investment priorities have changed for the long-term. Understand this shift.

January 27, 2010

Since the Fed can’t lower rates anymore and can’t raise (for fear of collapsing the economy), they are opting for changing the definition of interest rate or creating another interest rate.

So moving forward (at some point, not today) “official” interest rates will be a spread. And guess who gets to borrow at the lower end of the spread? GS and gov. And guess who gets to borrow at the high end…everyone else.

Anyway, it’s all noise. This will do nothing to help the average American get a lower rate on their mortgage. This changes nothing. The housing market and commercial real estate market are still doomed.

Make sure that in the future any stats that include an interest rate in its calculation is clear about what interest rate they are using.

Side musings: Elizabeth Warren was on Jon Stewart’s show last night. Once again she gives a very good, simplified view of the banking f-up. She also encourages voters to email/contact their senators regarding banking regulation reform. Groovygirl encourages the same thing. Whatever your view, tell your senators. Click here for video.

I think the most important development to support a break in price from physical and paper gold markets was the move by two major hedge funds last year to sell all their paper gold and hold only gold bars.

The average investor may not understand that the paper gold market is a scam, a derivative of physical gold at best, but the institutional investors will very soon, if not already. Countries already understand this, as they (China, India, Saudi Arabia, Iran) took possession of their gold bars in 2009.

The price may not break soon, but it will break at some point during this current gold bull market. And when it does, physical gold could have an unlimited price. At that break, you will not be able to find physical gold to buy at any price. So, make sure your investments are in place before the break.

As the article states, the big problem is debt. The economic growth in the US for the last 40 years has been fueled by debt not productive output. In order for the US to grow or just maintain the same level of economic activity, it must continue down the black hole of more debt. We will do this until we can not do it any longer and then we will crash.

No debt equals no recovery, period. This is the predetermined result of the systems that have been put in place.

If you are investing short-term (less than 2 years) in this economic environment, expect to get tossed around.

Groovygirl is a long-term trend investor, so I am setting up my investments for the currency crisis (and explosion in precious metals) around 2015, as predicted by Martin Armstrong, Alf Fields, Jim Sinclair, Jim Rogers, and John Williams. I am not listening to nor reacting to the day-to-day noise. Expect wild swings in the dollar, gold, and oil in the short-term. But the long-term trend for gold and oil is up and for the dollar is down. End of story.

The hallmark of the time leading up to a currency crisis is uncertainty. So wild swings in all markets are to be expected. And will be ignored by groovygirl. And when groovygirl says wild swings, I mean swings you have never seen in your lifetime. If you want to play those short-term swings, go right ahead. It is groovygirl’s opinion that you don’t.

The minor battle between deflation and inflation will continue for some time. It is next to impossible to invest in that environment. Our US financial houses live and die on short-term markets, it is how their system is set-up. Other countries actually invest long-term and plan past the next election term and quarterly bonus period. The media follows the short-term.

It is all noise and a distraction to the real paradigm shift happening now on all levels. Our government will continue to react to the crisis at hand rather than address the problems with the system. Make sure you are not making the same mistakes. It is wasted energy.

Groovygirl’s complete focus is on preserving capital for the long-term. I will only use these wild swings as a chance to buy more gold/silver, oil, and non-dollar currencies at low prices.